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Key U.S. Data Releases and Events28 Mar 08Next week, the economic indicators will point toward pronounced weakness in U.S. domestic demand during the first quarter. The Federal Reserve's market operations group was firing on all cylinders last week, as it ramped up liquidity and securities market support on three major fronts: $50 billion was auctioned under the temporary auction facility, $75 billion was auctioned under the term securities lending facility, and roughly $32 billion was borrowed by primary dealers at the Fed's discount window. These forceful actions did have their intended effects, as markets settled down in the aftermath of the Bear Stearns takeover, AAA-rated mortgage-backed securities prices bounced back up, and mortgage rates and some term borrowing spreads came down. Treasury yields moved back up, as the acute flight to quality dissipated. Indeed, the improved overall tone of the equities and securities market prompted JPMorgan Chase to boost its offer for Bear Stearns from $2.00 to $10.00 per share. Next week, the economic indicators will point toward pronounced weakness in domestic demand during the first quarter. February construction spending is expected to decline for the fifth consecutive month, and ISM leading indicators for March will likely slide further downward. March sales of motor vehicles are expected to slip below the 15-million-unit threshold, while payroll employment for March should decline for the third consecutive month, by 70,000, with an estimated loss of 20,000 jobs due to the American Axle, Inc. strike. Fortunately, a strong trade account will offset quite a bit of this domestic weakness, yielding an U.S. economy that perhaps shrank by less than 0.5% in the first quarter. KEY U.S. DATA RELEASES AND EVENTS THIS WEEK Tuesday, April 1 – Construction Spending (Feb.) Construction Put in Place Construction excl. Residential Improvements What to Look For
Implications February's construction numbers should be similar to January's. Spending on single-family homes will drop by more than 5% for the fourth straight month, spending on multiple-family units should drop for the 16th straight month, and nonresidential construction will drop for the third straight month. We are projecting no February change in public spending and residential improvements. Added up, construction spending should drop 1.5%. Overall construction spending is expected to exert a major drag on real GDP growth. Tuesday, April 1 – ISM Manufacturing Index (Mar.) Global Insight: 46.0 What to Look For
Implications Fairly robust export orders and contracting import orders are limiting much of manufacturing to a shallow dive, rather than a headlong retreat. As in recent months, watch export orders for any signs of faltering, since the economy is dependent on export growth for recession mitigation. Overall, the manufacturing sector is being pulled down by declining activity in building materials and motor vehicle production, as well as severe weakness in construction machinery. Tuesday, April 1 – Motor Vehicle Sales (Mar.) Global Insight: 14.9 Mil. What to Look For
Implications Consumer confidence continues to melt away in response to slower employment growth and persistent upward pressure on gasoline and other energy prices. As a result, demand for big-ticket items such as autos continues to slide down the slippery slope. Thursday, April 3 – ISM Nonmanufacturing Index (Mar.) Global Insight: 48.5 What to Look For
Implications We expect that downward pressure on services industries continued in March, with the composite ISM index slipping to 48.5. Pressures on the financial sector have remained intense, and further net job losses are expected in this industry. Freight activity also downshifted, partly as a result of lower motor vehicle sales, lower auto production rates, and the strike at American Axle. The transportation industry was also hit with higher diesel fuel prices, as well as airline service interruptions due to safety issues. The services industries are expected to remain on the ropes for several months. Friday, April 4 – Employment Report (Mar.) Nonfarm Payrolls Unemployment Rate Average Hourly Earnings What to Look For
Implications We expect payroll employment declined again in March, by 70,000, following the 63,000 decline in February. This would be the third consecutive monthly drop in employment. The American Axle strike is a wild card that will hit this month. There are only about 3600 workers directly involved, but more than 40,000 workers at General Motors have been idled due to a lack of parts, and other GM suppliers have had to curtail production as well. The key to the employment count is how many of these workers were off payrolls for the whole pay period, including the 12th of the month; some are in Canada, and some have continued to attend work for training or to do maintenance. For our payroll forecast, we have assumed an underlying loss of 50,000 jobs, with another 20,000 added for the direct and indirect impacts of the strike. We expect the unemployment rate to move sharply upward, from 4.8% to 5.0%, reversing the unusual dips in January and February. by Brian Bethune and Nigel Gault
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